Danone lawsuit strikes blow to Fonterra's shareholders

Relevant offers

Court action launched by French food giant Danone against Fonterra has worried and disappointed the dairy co-operative's farmer shareholders.

About a thousand are in Manawatu, Horowhenua, Rangitikei and Tararua, of the 10,500 shareholders throughout the country.

Danone has cancelled its supply contract with Fonterra and is launching legal action against the company in a bid to win compensation for $492 million of losses incurred last year and reputational damage.

The move follows a scare last August that saw Fonterra issue a milk powder contamination warning over botulism, that later tests found was a false alarm.

Federated Farmers Manawatu/Rangitikei provincial president Andrew Hoggard said he believed Danone was responsible for many of its own losses.

"As someone who was feeding Karicare [a Danone product] to their kid, Danone knew what was in their product, Fonterra didn't, but it was three days before Danone told parents not to use any Karicare products."

He said that contributed to the loss of confidence in the company rather than Fonterra's announcement. But of concern to him was the loss of Danone as a customer.

"They are a very big customer, and losing a customer is longer term more hurtful than a single payment.

"My understanding of how the milk price works is that any settlement will not affect the milk price to farmers. But it will come from dividend." There have been reports it could mean $43,000 less per farmer, and as a result less would be spent in rural towns as farmers tightened spending.

Danone spokeswoman Eliza Newton said the company had identified an initial €300m (NZ$492.9m) in anticipated business losses for the 2013 financial year.

She would not disclose the value of the terminated contract with Fonterra and said Danone was talking to other potential suppliers.

In an email to the co-operative's shareholders, Fonterra chairman John Wilson said their management team had been in ongoing discussions with Danone and were disappointed that it had chosen to take legal action.

"We will now work through the detail of Danone's claims, however we are confident in our position and will vigorously defend any proceedings."